Let’s take a look at one of the five major investment goals or objectives today. An investment objective is basically the reason you buy an investment; it is the starting point. When considering any investment, you first determine which of the following is most important about that investment:
- It’s not lost
- It grows in value
- It provides income
- A combination of any of the above
This week we’ll look at the first one on the list, capital preservation, as an objective. Capital Preservation is simply the lingo for keeping your money and not losing it. It means that the money you put into an investment initially will be there when you want it. It is money that, most importantly, you do NOT want to risk losing.
Capital preservation, for example, is the main objective of that money you hold in a money market that equals at least 6 months of living expenses, just in case you lose your job or have an emergency. Investments that have capital preservation as a main goal, then, are investments that will not fluctuate in value much, if any, because of volatility. This is typically the goal associated with very low risk investments, such as CD’s, money market accounts and short term Treasury bonds.
Of course, we don’t want to lose any of our money, but without some risk, it is unlikely that our money will grow, or even keep up with inflation. That is the nature of investing. Objectives are covered in depth in my 7 Steps course, but stay tuned as I cover the other investment objectives over the next few weeks in my Short & Simple Investment Tips.